Supplementary protection mechanisms have succeeded in achieving most of their aimed objectives, according to a study by the Technopolis Group that was commissioned by the Dutch government. However, another conclusion of the study is that the mechanisms seem to have various unintended effects as well. These effects still have to be further investigated. Below is a summary of the key findings of the study.

In 2016, the former Dutch Minister of Health, Welfare and Sports expressed concern regarding the contribution to innovation and unintended effects of supplementary protection mechanisms for pharmaceutical companies. These mechanisms have been introduced to compensate for some of the exploitation time lost due to increasingly demanding and complex regulatory processes the pharmaceutical industry is often faced with. They also aim to offer an incentive to shift the industry’s focus from the areas of greatest profit potential to areas where innovation, as a result thereof, is currently lacking. In response to the Minister’s concerns, the Dutch government commissioned a study, the results of which were published in May 2018. The study distinguishes between four types of supplementary protection mechanisms: the Supplementary Protection Certificate (the SPC), the Paediatric Extension, the Orphan Drug Status, and Data & Market Exclusivity. The study examined whether, and to what extent, the supplementary protection mechanisms are, at present, fit for their purpose. For this, two questions needed to be answered: 1) whether the objectives of the supplementary protection mechanisms are sufficiently realised, and 2) whether there are any unintended side effects.

1. The SPC. The SPC regulation offers pharmaceutical companies the possibility to add up to a maximum of five years of protection to their product in addition to twenty years of patent protection. In doing so, the regulation aims to compensate for loss of effective term of the patent, thereby incentivising break-through innovation and pharmaceutical R&D in Europe by bringing European policy more in line with policy in for example the US, one of its main competitors.

The study mentions that, since the introduction of the regulation, pharmaceutical R&D in Europe has strongly increased, but the regulation has been unable to close the innovation gap between the EU and the US. Moreover, the SPC regulation is unlikely to counteract the tendency in the pharmaceutical industry to gravitate towards safer, marginal innovation rather than pursue risky, break-through innovation. The study concludes that this is, in part, due to the fact that a number of fundamental concepts, and thereby the scope of protection, of the SPC-system remains unclear. It therefore seems that the regulation has not reached its full potential to incentivise innovation. The study does however show and recognise that the regulation offers sufficient compensation in return for R&D investments.

2. The Paediatric Extension. The Paediatric Extension offers a six-month extension of SPC’s on the condition that the SPC is in place and a Paediatric Investigation Plan (PIP) has been approved when applying for market authorisation (MA). The Paediatric regulation aims to stimulate R&D for use of pharmaceutical products for children, as most medicinal products used by children and adolescents have not been developed and researched for that specific use.

The study shows that there are no signs of increase in the number of products developed for indications that occur only in children. However, for products with both an adult and paediatric indication, the regulation has succeeded in increasing research in paediatric medicinal products. As a result, there is an increase in the number of products with an indication for paediatric use or an age-appropriate formulation. Another concern expressed within the study referred to the balance between the size of the reward and the investments necessary to develop and comply with the PIP.

3. The Orphan Drug Status. The Orphan Drug regulation offers ten years of market exclusivity for medicinal products that receive the so-called ‘Orphan Designation’. This incentive is aimed at stimulating R&D for medicinal products to treat orphan diseases, which affect no more than 5 out of 10.000 people.

Since the regulation came into effect, the number of applications for an orphan designation has risen sharply. Also, the number of orphan medicinal products that receive an MA has increased. However, the study has found that new applications tend to cluster around oncological indications, which has caused to question whether the regulation is sufficiently encouraging development of medicinal products in other areas. For example, the regulation failed to incentivise the development of new medicinal products for rare diseases in children. However, the regulation has succeeded in targeting development of medicinal products for some of the rarest diseases, in spite of the fact that substantial unmet needs remain. For many such diseases, needs remain unmet because their basic disease mechanisms are not yet sufficiently understood, rather than that this is due to a lack of incentive from the regulation.

The study also talks about the consequences of indication stacking, which means that companies attempt to seek orphan designation for the same product more than once and therefore benefit from an extension of market exclusivity. The study does, however, not mention that in 2016 the CJEU ruled that the possibility to extend the market exclusivity for a second orphan product that is similar to the first authorised orphan product is an intended effect of the Orphan Drug Regulation (C-138/15).

4. Data & Market Exclusivity. Data and market exclusivity aim to stimulate R&D by, in return, rewarding companies through temporary exclusive rights. During the eight years of data exclusivity, generic manufacturers cannot refer to the research dossier of the reference originator medicinal product to obtain an MA. Under the additional two years of market exclusivity, a generic manufacturer may file for a MA, but is not allowed to market their generic until expiry of the market exclusivity term.

The study has shown that the impact of data and market exclusivity on innovation is less clear. The study did, however, come to the general conclusion that data and market exclusivity can delay entry of generic competition.

Economic impacts. The study also examined to what extent price developments and the total costs of medicinal products for Dutch society can be related to patent protection and supplementary protections and exclusivities. With regard to the foregoing, the study concluded that supplementary protections are unlikely to have an effect on the price at which the medicinal product enters the market. According to the study, by optimising their IP and regulatory strategies, pharmaceutical companies could use supplementary protection mechanisms in combination, such that the effective period of protection for a product is extended beyond the duration of the original patent. Upon entry of the generic competition, the costs per user or daily dosage sharply dropped, including the costs of the products of manufacturers of the original products. Supplementary protection mechanisms are therefore likely borne as a cost by the Dutch healthcare system. The study did, however, not investigate whether these costs are higher than the benefits of the mechanisms for society, by i.a. stimulating innovation.

Conclusion. In conclusion, the study demonstrates that the supplementary protection mechanisms have succeeded in achieving most of their aimed objectives. All mechanisms seem to suffice in regard to their compensatory purpose, however, when it comes to incentivising innovation, their successes vary. However, according to the study, there are also certain unintended effects, such as the legal uncertainty about the SPC regulation. The study also makes some observations regarding unintended effects that still have to be investigated. However, according to the study there is ample space for improvement, which involves a combination of improving the effectiveness of the regulations, resolving remaining uncertainties and reduction or elimination of unintended effects. In this respect, the recent decision by the CJEU in Teva v. Gilead already gives some guidance regarding the uncertainties of the SPC Regulation. Also, the awaited CJEU A-G opinion in Abraxis BioScience will clarify at least certain uncertainties in relation to SPC’s for second medical use patents.

This study of the Technopolis group will prove a useful contribution to the current debate about incentives and rewards for innovation. Please also see this article about the reward of innovation at EU level.